Jefferies has raised its year-end target for the S&P 500 to 6,600, up from 5,600, which they set at the end of July. This increase is the second major update in a short time. It comes after Fed Chair Powell’s recent comments, suggesting the central bank might take supportive actions that could impact the market.

Market Pricing and Federal Reserve Policy

With the new target of 6,600 for the S&P 500, we think the market is expecting a more favorable policy from the Federal Reserve. This outlook is a direct response to last week’s dovish remarks indicating the Fed is ready to ease conditions. The latest CPI data from July shows inflation has slowed to 2.8%, reinforcing our belief that stocks are likely to rise. In the next few weeks, we recommend buying call options to take advantage of this expected upward trend. We’re focusing on out-of-the-money calls on the SPX with October and November 2025 expirations, especially around the 6,500 strike price. This strategy allows for leveraged gains in case of a year-end rally while keeping risks manageable. For traders who prefer to take on less risk, selling cash-secured puts or bull put spreads can be a good choice to earn premium. This approach benefits from both a rising market and the passage of time, based on the belief that the index won’t drop significantly from current levels. This method worked well during a similar Fed pivot in late 2023, leading to a strong market rally into the next year.

Impact on Market Volatility

We also need to think about market volatility. The CBOE Volatility Index (VIX) is currently near 14, and we expect it to decrease further as the Fed’s dovish position reduces uncertainty. This makes short-volatility trades, like selling straddles, more appealing for those betting on a steady rise rather than sudden jumps. However, the main risk to this outlook is a surprisingly strong economic report, such as the upcoming August jobs data, which could prompt the Fed to change its dovish tone. Because of this, we suggest structuring any bullish positions with defined risk, like using spreads. This can help protect against a quick change in market sentiment. Create your live VT Markets account and start trading now.

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